Category : investing

401k-investment-advice

Koozie’s Won’t Lead You to the 401k Promised Land

Before I got into finance 18 years ago, I started my career in advertising and I’ll never forget my first 401k investment meeting.

I was at my first job; a co-worker popped his head into my cubicle and asked if I was going to the 401k meeting. What 401k meeting? What is a 401k? So I went. A guy in a $2000 three-piece suit stood in front of about 100 of us and explained after-tax saving, pre-tax saving, asset allocation and tossed in a few indecipherable charts and some very colorful diagrams. As I surveyed the room, 80% of the folks were squinting and nodding – but the kind of nodding where you know they have no clue what he was saying. Another 10% were paying zero attention. And the final 10% seemed to be tracking quite well (I might add they were all from the finance department). Then came the question and answer session. I had a thousand questions…but there was no way I was going to raise my hand. I didn’t want to look like a fool and ask a stupid question about 401k investment advice. I imagine my co-workers felt the same.

I left the meeting with a binder, a koozie with a financial firm’s logo on it, and a pile of questions.

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how to choose 401k investments

This 401k Plan is a Joke! – How to choose 401k investments

I have been in the investment advisory business since the mid-1990s. I am a CFP (Certified Financial Planner) and I co-founded a wealth management firm from scratch to over $500 million of client portfolios. Despite all of this experience – when I look at this fund menu of 403b investment options below even I can’t figure out what most of these fund choices are!! What the heck is “VEEDOT” or “VALUE”? Prime Money Market sounds good but Premium Money Market sounds even better. What about Global Gold – is that better than cheap old US Gold?

My point here is this. If someone with almost 2 decades of in-the-trenches investment advisory experience can’t tell what the heck some of these 401k options are – why in the world would we expect the average person to be able to decipher these choices? Don’t forget, their future ability to retire will largely rest on the performance of their retirement savings. With all of this at stake – THIS mess is the best we can do for the Baltimore Public School employees on how to choose 401k investments!

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Bacon & Investing

I have to admit, I love bacon. I mean I really love it. If it weren’t for my cardiologist and my wife, I’d have a steady rotation of bacon wrapped everything.

So you can imagine my surprise when I was scrolling through my Facebook feed and found this glorious headline, “New Study Claims Eating Bacon May Prolong Your Life.”

Hallelujah! I was filled with a new-found hope – bacon isn’t actually bad for you! My theory that there’s anti-bacon lobby spreading negative propaganda all these years was starting to pan out. After my two second mini-celebration, I saw the next headline that Facebook tossed into my news feed: “Study: Pancreatic cancer risk increases with every 2 strips of bacon you eat.”

My bacon jubilation was squashed.

My point here is obvious; I and millions of other people are persuaded by the media. It’s natural and it’s normal.

When it comes to investing, the same holds true.

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Performing Surgery on Yourself

Many hundreds of years ago it was quickly determined that performing surgery on yourself wasn’t the most practical idea. (Remember as a kid when you tried to rub your belly with one hand while patting your head with the other? Now imagine doing that with a razor sharp surgical stone in one hand.) As a result the profession of Doctor was invented. At first, they might have been referred to as the village medicine man, but I think you get the picture.

It has been 40 years since the 401k was introduced and we are still asking retirement savers to effectively “operate on themselves” when it comes to managing their 401k balances. So far, most self-help solutions focus on providing more and more retirement planning tools, calculators and general education. This is like believing that if we can just produce a better manual or surgical scalpel, then finally people will be able to perform their own open-heart surgeries.

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Which 401k Investor Are You?

  1. The DIY investor enjoys researching investment options and in their free time can be found reading investing articles from The Wall Street Journal, Barron’s, Yahoo Finance, etc. This person may believe that paying someone for investment advice is completely counter-intuitive, since they are totally capable of doing it themselves for free. We joke that occasionally, these are the same folks (ahem, Men) who refuse to stop and ask for directions when lost. But that’s another discussion.
  2. You have enough coin to actually get the attention of a qualified professional investment advisor. Maybe you are a bit long in the tooth and have done a good job of saving money. Maybe you got an inheritance at an early age. Or maybe you’re a silicon valley stock-option millionaire. Whatever the case – my guess is that you have at least 6 or 7 figures in your portfolio and have the benefit of working with a qualified (preferably fee-only) investment advisor.
  3. You know you need help because you don’t have the time, desire, or knowledge to attempt to manage your 401k by yourself. You googled “401k help” and found 19 million entries. You have one of those know-it-all brother-in-laws but you just can’t bring yourself to flatter him by asking for his help. As a result, you’ve done your best to invest your 401k, possibly using one of those “one-size-fits-all” Target Date funds in your plan.
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